Stark Law Compliance

Stark Law is based upon AMA Code of Medical
Ethics Opinion 8.0321, which prohibits a doctor from referring
patients to an outside provider, where the doctor owns an interest
in the provider, without full disclosure of the conflict. Stark Law
is based on this concept with several differences, (1) the
definition of “ownership” has been expanded to mean “any financial
relationship,” (2) the rule only applies to Designated Health
Services (DHS’s), (3) the rule applies to physicians and close
family members, (4) there is no provision for compliance by full
disclosure to the patient.

Stark Law dates to 1989, when Congressman Pete
Stark sponsored a special rule prohibiting certain Medicare
referrals, which only applied to physicians, and only to
certain specific items of expense termed, “Designated Health
Services,” or DHS’s. Stark Law compliance is one of the
pre-conditions to submission of a bill for payment to Medicare. The
government takes the position, a physician is required to certify
that he has read, understood, and complied with Stark Law as a
condition to admission to the program.

The law does not completely ban all referrals
to all entities with whom a physician has a relationship. Instead,
Stark Law contains a number of confusing Safe Harbors. If a
physician has not strictly complied with Stark Law, (and the Safe
Harbor provisions,) all bills submitted may be deemed False Claims
under the Act, and subject to an $11,000 penalty for each bill
submitted. It does not matter that the patient in fact, needed the
treatment, and no fraud was involved. The violation itself, or the
“false certification” of compliance, makes the claim potentially
“False.”

The idea behind Stark Law was that physicians
would have less of an incentive to over-prescribe tests for Medicare
patients, if they did not have an ownership interest in an outside
facility which performed the Designated Health Services. Stark
Law at first glance, prohibits all self-referrals of Medicare
patients for DHS’s– but then allows a number of arrangements by
virtue of “Safe Harbor” regulations. The Safe Harbor rules are so
complex and confusing, one would suspect any certification by a
physician to the effect that he “understands” them and is “in
compliance.”

In order to understand both sides of the Stark
Law debate, we must take a look back to the beginning of Medicare in
1965. Over the course of the 20th century, American
physicians, through the AMA, tried mightily to fend off not only
the government, but also corporate intrusion– which they termed,
the “corporate practice of medicine.” The AMA was against both
Medicare and anyone other than a physician, meaning corporations,
earning a living from the practice of medicine.

What the AMA primarily objected to was “for
anyone else, such as an investor, to make a return from a
physician’s labor.” See, Starr, Paul The Social
Transformation of American Medicine (New York: Basic Books,
1982.) So the AMA decided to erase capitalism from the picture. It
did so by backing political candidates who would outlaw,
state-by-state, the ownership of clinics and hospitals by
non-physician, private investors. If medicine required capital
beyond that which doctors could provide, it would have to be
contributed gratis by the community, (instead of investors
looking for a profit.) Id.

If the AMA were to have any credibility against
critics who charged the AMA’s lofty ideals were “financially
convenient,” physicians would need to practice what they preached.
And so the AMA adopted rules prohibiting their own membership
from earing passive income from financial investment of capital.
This was accomplished by AMA Rule 8.03, which declared it an
“unethical conflict of interest” for a physician to earn a profit
from the referral of a patient to an outside clinic, which
the physician also owned.

When Medicare passed congress in 1965, it did
so only with the promise to physicians that their autonomy would be
preserved, they would be paid on a fee-for-service basis, and the
government would not come between treatment decisions and the
patient. Physicians happily accepted this trade-off, but only for
so long as everyone played by the rules. But in the 70's and 80's,
the walls which held corporate interests at bay was finally
breached, for no greater reason than the fact that Medicare made it
too lucrative to keep Wall Street out of the delivery of medicine.
Corporate clinics began popping up everywhere, which siphoned off
Medicare dollars, which led to reductions in the fee schedule paid
to physicians.

Physicians began to respond (rightly or
wrongly,) by taking the position that because the goal posts had
been moved, they should be free to disregard their own rules– with
impunity. Practically overnight, it seemed, every physician also
owned a diagnostics laboratory or clinic. In order to stem the tide,
(and the turf war,) of newly developing physician owned clinics and
testing facilities, Congressman Stark sponsored the eponymous Stark
Law, which is a near verbatim recitation of AMA Ethics Rule 8.032.

But the excuse that Stark Law was “necessary to
counter physician greed” is itself, a little too convenient, and
doesn’t exactly square with the facts. The truth is, any time more
dollars become available in a capitalistic market, every one tries
to grab as much as they can. The physicians, for their part feel
betrayed: If Medicare kept its promise, and physicians were well
paid in full for treating a patient, physicians should not need
passive income from the prescription of ancillary services.

In 1965, Medicare paid 80% of the usual and
customary “fee for service” charged by a physician. Today, Medicare
pays barely 20% of this rate, but physicians alone are prohibited by
Stark Law, from opening outside clinics. Many physicians, who cannot
operate at this level, are forced to sell their practices to large
groups simply to survive.

For physicians and the government this has all
become a sort of “devil’s bargain.” The influx of corporations
earning huge fees from testing facilities led directly budget
shortfalls and the government’s broken promises to pay a reasonable
rate to doctors. Doctors, in turn, began looking for new ways to
replace lost income they no longer earn from hands-on treatment.
What we are left with is a system in which each side accuses the
other of all manner of bad behavior.

One ultimate truth remains: “The one with the
gold, (in this case the government,) makes the rules.” And make
rules, they did. . . with a vengeance. So many, in fact, the Fourth
Circuit has described the regulations surrounding Medicaid
reimbursement, as “One of the most impenetrable texts within human
experience.”
See, Rehab’h Ass’n of Va. v. Kozlowski,
42 F.3d 1444, 1450 (4th Cir. 1994.)
See,
Baumann, et al.,
Healthcare Fraud and Abuse,
p. 200, ABA Health Law Section Press, 2002.

Unlike the AKS, the Stark Act is a strict
liability statute, which applies only to physicians and only to
referrals for one of 11 Designated Health Services where the
physician, or a close family member has a financial relationship.
Stark Law has safe harbors found in the main statute and as
constantly tinkered with by the OIG and HHS in 42 C.F.R. § 411.351,
et seq., and a various assortment of bulletins and advisories.

Stark law, prohibits physicians from referring
patients to receive "designated health services" payable by Medicare
or Medicaid from entities with which the physician or an immediate
family member has a financial relationship, unless an exception
applies. Financial relationships include both ownership/investment
interests and compensation arrangements. For example, if you invest
in an imaging center, the Stark law requires the resulting financial
relationship to fit within an exception or you may not refer
patients to the facility and the entity may not bill for the
referred imaging services.

Stark Law compliance is a complex and highly
specialized area of law. While the government agencies in charge of
administering Medicare do a remarkable job of implementing rules for
nearly every conceivable circumstance, the result is something akin
to tax law, “in reverse.”

Martin Merritt is a Stark Law attorney,
practicing in Dallas, Texas. If you would like to schedule a free
consultation, please
contact us.

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